Federal Election Commission Main Page
June 26, 1992
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
ADVISORY OPINION 1992-17
Kenneth A. Gross
Skadden, Arps, Slate, Meagher & Flom
1440 New York Avenue, N.W.
Washington, D.C. 20005-2107
Dear Mr. Gross:
This responds to your letters dated May 12 and April 17,
1992, requesting an advisory opinion on behalf of Du Pont
Merck Program for Active Citizenship, Inc. ("Du Pont Merck
PAC") concerning the application of the Federal Election
Campaign Act of 1971, as amended ("the Act"), and Commission
regulations to the affiliation of a political committee of a
joint venture partnership with the separate segregated funds
of the corporate partners.
Du Pont Merck PAC is a nonconnected political action
committee formed by employees of Du Pont Merck Pharmaceutical
Company ("Du Pont Merck" or "the Partnership"). Du Pont
Merck is a Delaware general partnership equally owned by two
corporations, E.I. Du Pont de Nemours and Company ("Du Pont")
and Calgon Corporation ("Calgon"). Calgon is an indirect
wholly-owned subsidiary of Merck & Co., Inc. ("Merck"). Du
Pont sponsors a separate segregated fund named the E.I. Du
Pont de Nemours and Company Good Government Fund ("Du Pont
PAC"), and Merck sponsors an SSF named Merck & Co., Inc. PAC
("Merck PAC").1/
Du Pont Merck is a pharmaceutical company established in
1991, which employs 4,000 persons and which made over $230
million in research and development expenditures on drugs for
various diseases during its first year.
Du Pont Merck has a six member Board of Directors, three
members chosen by and representing Du Pont and three chosen
by and representing Merck. The lists of directors in the
Partnership's quarterly reports indicate that these members
are senior officers of the two companies, including senior
vice-presidents and Merck's chief financial officer. The
President and CEO of Du Pont Merck had previously been a
vice-president of Du Pont.
The Partnership's Board makes certain major decisions,
while other decisions are reserved for the Partnership's
officers and employees without Board input. Examples of the
decisions that are reserved to the Board are acquisition of
other companies; making large capital investments; admitting
a new partner; amending the partnership agreement; filing for
bankruptcy; making major borrowing commitments; approving a
charitable or political contribution in excess of $50,000;
and authorizing certain other large expenditures.
The Board also has the authority to appoint and dismiss
key employees of Du Pont Merck, to set their compensation
terms, and to enter into employment contracts with such key
employees as the president, the chief financial officer, and
officers with principal authority for sales, marketing and
manufacturing.
Although the Board may appoint ex-officio (non-voting)
members from among the officers of Du Pont Merck and the
President is automatically an ex-officio member, the number
of voting members of the Board may not be enlarged by either
of the two partners. You state that neither Du Pont nor
Merck has any advantage over the other partner in convening a
quorum or in voting power generally, and that neither partner
has a predominant management role or controlling position.
In the event of a Board deadlock, either Du Pont or Merck may
request that the deadlocked issue be resolved by referring it
to the chief executive officers of Du Pont and Merck. If the
two CEOs cannot resolve the issue, there is no further
provision for resolution. With respect to the discharge of a
key employee, neither partner may unreasonably withhold its
consent to the recommendation of one partner for such
discharge.
Du Pont Merck PAC is incorporated in the District of
Columbia. It raises contributions by soliciting the
executive and administrative personnel of Du Pont Merck. It
is responsible for indemnifying its own directors and
officers, pays for its own expenses, and does not coordinate
its activities with Du Pont PAC or Merck PAC. You ask
whether Du Pont Merck PAC is affiliated with Du Pont PAC and
Merck PAC. You also ask, in the event the Commission
determines that Du Pont Merck PAC is affiliated with Du Pont
PAC and Merck PAC, whether Du Pont or Merck may pay the
administration and solicitation costs of Du Pont Merck PAC.
The Act and Commission regulations provide for the
affiliation of committees established, financed, maintained,
or controlled by the same corporation, labor organization,
person, or group of persons, including any parent,
subsidiary, branch, department, or local unit thereof.
2 U.S.C. §441a(a)(5); 11 CFR 100.5(g)(2) and 110.3(a)(1). In
making this determination, the Commission may examine the
relationship between organizations that sponsor committees,
the committees themselves, or between one sponsoring
organization and a committee established by another
organization. 11 CFR 100.5(g)(4)(i) and 110.3(a)(3)(i).
Commission regulations include circumstantial factors
for determining whether an organization is an affiliate of a
corporation. 11 CFR 100.5(g)(4)(ii) and 110.3(a)(3)(ii).
These criteria include (1) whether a sponsoring organization
has the ability to direct or participate in the governance of
another sponsoring organization through provisions of
constitutions, bylaws, contracts, or other rules, or through
formal or informal practices or procedures; (2) whether a
sponsoring organization has the authority or ability to hire,
appoint, demote or otherwise control the officers or other
decisionmaking employees of another sponsoring organization;
(3) whether a sponsoring organization has common or
overlapping officers or employees with another sponsoring
organization which indicates a formal or ongoing relationship
between the sponsoring organizations; (4) whether a
sponsoring organization has any members, officers or
employees who were members, officers, or employees of another
organization indicating a formal or ongoing relationship
between the sponsoring organizations; and (5) whether a
sponsoring organization had an active or significant role in
the formation of another sponsoring organization. 11 CFR
100.5(g)(4)(ii)(B), (C), (E), (F), and (I) and
110.3(a)(3)(ii)(B), (C), (E), (F), and (I).
By virtue of having 50 percent control each over the
Board of Directors, the assent of Du Pont and Merck are each
necessary to enable Du Pont Merck to take a significant
number of major decisions. Included among these decisions is
the appointment, dismissal, and compensation of key
employees. The Board of Directors itself consists of
high-ranking officers of the two partners, and the president
and CEO of the partnership had been a high-ranking officer of
Du Pont. With respect to the final factor listed above, Du
Pont and Merck were the creators of Du Pont Merck.
Despite the fact that neither Du Pont nor Merck has the
predominant management role or controlling position, a review
of the factors with respect to each of the companies leads
the Commission to conclude that Du Pont Merck is an affiliate
of each of the companies. This is consistent with the
Commission's conclusion in Advisory Opinion 1979-56 where two
corporations each owned 50 percent of the stock of a third
corporation they jointly created; the Commission concluded
that the PACs of the parent corporations would each be
affiliated with the third corporation's PAC but not with each
other. See also Advisory Opinion 1983-19. Compare Advisory
Opinion 1984-36.
The Commission has long held that affiliates may include
entities other than corporations, such as partnerships.
Advisory Opinions 1989-8, 1987-34, and 1983-48. Although the
Act does not provide for the establishment by partnerships of
separate segregated funds, the Commission has concluded that
a PAC sponsored by a partnership is affiliated with the SSF
of an affiliated corporation. In Advisory Opinion 1979-77,
the Commission deemed the PAC of a partnership to be
affiliated with the SSF of a corporation over which the
partnership had a controlling interest. This was affirmed
and clarified when the Commission stated that, even though
partnership PACs do not carry the same restrictions on
solicitation that SSFs do, a PAC of a partnership that is an
affiliate of a corporation that had an SSF may not make
unlimited solicitations but is limited in the way that a
corporate SSF would be. Advisory Opinion 1989-8. See also
Advisory Opinion 1983-48.
Based on the foregoing, the Commission concludes that Du
Pont Merck PAC is affiliated with Du Pont PAC and is
affiliated with Merck PAC.2/
You ask whether Du Pont and Merck may pay the
administration and solicitation costs of Du Pont Merck PAC.
Under 2 U.S.C. §441b(b)(2)(C), a corporation is permitted to
use its general treasury funds to pay for the costs of
establishing, administering, and soliciting contributions to
its separate segregated fund. The payment of such expenses
is also explicitly excepted from the Act's definitions of
"contributions" and "expenditures." 2 U.S.C. §431(8)(B)(vi)
and (9)(B)(v). The Commission has permitted a corporation
that has an affiliated relationship with another corporation
to pay the administration and solicitation costs for the
latter's SSF. Advisory Opinion 1983-19. In view of the
status of Du Pont Merck PAC as an affiliated committee with
the separate segregated funds of Du Pont and Merck, the
Commission concludes that Du Pont and Merck may pay
administration and solicitation costs of Du Pont Merck PAC.
Although not expressly included in your questions, your
request raises the question of whether Du Pont Merck itself
may pay the administrative and solicitation costs of its PAC
without those payments being treated as contributions. The
Act does not extend to a partnership the ability granted to a
corporation at 2 U.S.C. §441b(b)(2)(C) to conduct itself as a
connected organization and benefit from the above-described
exemption for establishment, administration, and solicitation
costs. Advisory Opinions 1990-20, 1982-63, 1981-56, and
1981-54. See California Medical Association v. Federal
Election Commission, 453 U.S. 182 (1981). Nevertheless, the
Commission has treated a joint venture partnership of
corporations differently as a result of its relationship with
corporations. A partnership consisting of two corporate
partners was permitted to share, with a corporation owned by
the partnership, the expenses of establishing and financing a
payroll deduction plan under 11 CFR 114.5(k)(1), without a
contribution by the partnership resulting. The Commission
stated that the joint venture partnership status should not
preclude such involvement in view of the fact that the
partnership is owned 50-50 by corporations. Advisory Opinion
1987-34. Similarly, Du Pont Merck is owned in its entirety
by two corporations with which it is affiliated.
Accordingly, Du Pont Merck may pay the administrative and
solicitation expenses of Du Pont Merck PAC without a
resulting contribution from Du Pont Merck.
This conclusion is compatible with the dual attribution
principle for partnership contributions at 11 CFR 110.1(e).
Contributions by partnerships are not only attributed to the
partnership as a whole but are also attributed to partners.
The administrative and solicitation support may be construed
as coming from the affiliated corporations. To the extent
that Advisory Opinions 1981-56 and 1981-54 would prohibit
joint venture partnerships in the position of Du Pont Merck,
i.e., partnerships owned entirely by corporations and
affiliated with at least one of those corporations, from
paying establishment, administrative, and solicitation costs
without contribution consequences, those opinions are hereby
superseded.
Finally, the Commission notes that Du Pont Merck PAC
should amend its statement of organization to identify Du
Pont PAC and Merck PAC as affiliated committees. 2 U.S.C.
§433(b)(2). In addition, in the event that Du Pont Merck PAC
functions as a separate segregated fund, it will have to
identify a connected organization on its statement of
organization. Id. Commission regulations provide that a
connected organization may be a corporation which directly or
indirectly establishes, administers, or financially supports
a political committee but makes no provision for a
partnership in that role. 11 CFR 100.6(a). Therefore, if
support is provided directly by Du Pont and Merck, or
indirectly by those two corporations by virtue of support
from Du Pont Merck, Du Pont Merck PAC must amend its
statement of organization by identifying Du Pont and Merck as
its connected organizations. See 11 CFR 102.1(c).
This response constitutes an advisory opinion concerning
application of the Act, or regulations prescribed by the
Commission, to the specific transaction or activity set forth
in your request. See 2 U.S.C. §437f.
Sincerely yours,
(signed)
Scott E. Thomas
Vice-Chairman for the
Federal Election Commission
Enclosures (AOs 1990-20, 1989-8, 1987-34, 1984-36, 1983-48,
1983-19, 1981-56, 1981-54, 1979-77, and
1979-56)
ENDNOTES
1/ According to their filings with the Commission, Du Pont
PAC and Merck PAC are active, registered political
committees.
2/ In view of the joint ownership and control over Du Pont
Merck in a 50-50 partnership, and given Commission
regulations applicable in the related context of partnerships
(further discussed below), the Commission concludes that, for
contribution limit purposes, each Du Pont Merck PAC
contribution should be apportioned half to the limit shared
with Du Pont PAC and half to the separate limit shared with
Merck PAC, or to an alternative apportionment that is also
agreed upon by the two SSFs. See Advisory Opinion 1987-34
for further details as to applicable limits, apportionment of
the contributions, and the provision and maintenance of
written instructions. See also 11 CFR 110.1(e).